Market Predictions For 2019

Market Predictions - Still Expecting A Trade Deal Between America & China

2018 was a tumultuous year for markets partially because of the uncertainty caused by U.S. trade policy.

Deals were made with countries such as Canada and Mexico. But the tensions with China were ratcheted up much of the year. Then in early December, a 90-day truce was made where the 2 nations would negotiate a deal without raising tariffs on each other. The U.S. tariff rate on Chinese goods would have increased to 25% this year without the truce.

Making a deal will be tough because little progress was made when President Xi and President Trump last met. Plus, the Chinese New Year celebration occurs during the 90-day window as it is on February 5th.

Even with the lack of reported progress, many think a deal will be reached in Q1 2019. A communication window is open, and both countries are seeing their economic growth decelerate.

The principal cause of the weakness isn’t the trade war, but it hurts firms’ ability to invest because of the uncertainty.

Even a slight economic boost from a trade deal would help. It would go along nicely with China’s big fiscal stimulus.

To be clear, I still think China will have a rough year. However, those catalysts are still positive.

Latest news on trade is seen in the chart below.

For the first time since the first half of 2018, China is buying American soybeans. This is either a sign tensions are easing or that China really needed American soybeans because the Brazilian harvest season is over.

U.S. trade representative, Robert Lighthizer called China’s purchases of soybeans empty promises and stated he wants more tariffs on China. That’s not positive rhetoric. It’s also not a surprise as he has been a hawk on trade his entire career. He argued for tariffs in 2008.

(Click on image to enlarge)

Market Predictions - Fed & Fed Funds Futures Market Differ Dramatically

Monetary policy is a huge variable to consider when predicting where asset prices and the economy will go in 2019.

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